Economy look dim? Don’t worry, be happy

Commentary: Consumers say they’re happy, but are they really?

PORT WASHINGTON, N.Y. (MarketWatch) — Consumers may be telling the pollsters that they are happy, but when it comes to opening their wallets, it’s more like they’re another day older and deeper in debt.

Ask people about Murphy’s law, which postulates that anything that can go wrong, will, and they will respond by citing O’Brien’s law: Murphy was an optimist.

This attitude makes you kind of wonder what people are so happy about. Here are just a few of their concerns:

The 2% Social Security tax was restored at the beginning of the year. That’s $1,000 gone with the wind for households earning $50,000 a year;

Because of political bickering, people’s tax refunds have been delayed. This is money many households were counting on to pay their holiday bills, or otherwise make ends meet;

There are few good jobs out there for the 99% — especially those who have the misfortune to be among the long-term unemployed;

From Sandy to Nemo, the weather has been awful, to say the least. Let’s not forget that the Midwest got pounded this week with tons of snow, for the second time in a matter of days;

If this were not enough, fuel prices are soaring, along with those for such other necessities as food and health care. Makes you also wonder — this time about the accuracy of the government’s price indexes, which show little or no inflation;

Getting back to politics, people are tired of the incessant bickering that seems to be a daily occurrence inside the Beltway. I am referring to gridlock over the upcoming sequester, the need to authorize government funding, Washington’ debt ceiling and cabinet appointees.

Because of federal cutbacks in aid to states and local governments, there already have been widespread layoffs and reductions in services. In this environment, can you blame people for being parsimonious?

Nowadays, consumers are in no mood to buy anything other than necessities — assuming they can afford them. This is why they insist on markdowns, discounts, freebies and other means of price cuts before they even consider making a purchase.

So whether they are happy or not, the bottom line for retailers is people are not spending.

Retail sales in January are a case in point. They were well below economists’ expectations (and merchants’ hopes), coming in flat compared with December, seasonally adjusted.

February looks even worse, according to an internal memo leaked from a major retailer. All this does not bode well for the economy, since consumer spending accounts for about 70% of our overall gross domestic product.

On top of this, there is the previously mentioned fiscal restraint, which is tighter than is generally believed. Effective tax rates have jumped this year — and not just on the 1%. Meanwhile, sequester or not, spending is dropping sharply.

Could centrist Democrats break Washington's fever?

(4:18)

A group of younger, moderate Democrats in the Senate may possibly have the potential to fill the capital's power vacuum.

For its part, monetary policy is so easy it is actually counterproductive. Savers are being deprived of interest income, thus buying power.

Yet, if the Federal Reserve were to throttle back just a tad, the stock market would tank, as it demonstrated last week and this.

Then there are our trading partners, especially China, Japan and countries in the euro zone, who are pushing their currencies down against the dollar in order to gain a trade advantage at our expense.

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